Tobacco retailers must adapt to ever changing trends when creating a strategic merchandising strategy to maximize profits in the tobacco category.
An example of such changing trends is found in the rise of fourth-tier sales in the midst of a U.S. recession. In 2008 and 2009 discount, “price-value” and fourth-tier tobacco brands benefited from the double whammy of an economic malaise and a stiff federal-excise-tax increase on cigarettes and tobacco, pushing consumers toward value and away from premium brands. According to USDA shipment and MSAI data by fourth-tier manufacturer King Maker Marketing Inc., savings brands’ share of shipments grew 3% across all channels between fourth-quarter 2008 and 2009.
The sentiment of the time was “Once the consumer moves to “price-value” and purchases a brand that is of a quality that is adequate for them, they won’t go back, even when economic times change. Based on this tobacco retailers were encouraged to push fourth-tier tobacco products and to opt out of contracts that would have them push premium brands over the lower priced fourth-tier brands. However, since then small and medium-sized manufacturers have stiffer competition from the majors, whose heavy promotion of value brands is blurring the lines between the traditional price tiers.
In a tobacco category trend report* released March 7, 2013, by David Bishop, managing partner of Balvor LLC, a sales and marketing firm that provides consulting, sales support, research, and analytic services to retailers, Bishop reports that although unemployment rates are consistent to rates in 2008-2009, fourth-tier cigarette brands have seen an 11.6% drop in unit sales and a 9.4% decrease in dollar sales. Comparatively, branded discounts, although they have experienced a 1.6% decrease in unit sales have seen a 5.1% increase in dollar sales apparently due to an increase in margins. Premiums have also seen a small percentage of growth in dollar sales at 1.6%.
Premium and branded discounts cigarettes still dominate dollar sales at over 90% of revenue streaming from these two product categories. Fourth-tier products only make up 6.7% of current dollar sales.
As a tobacco retailer, one must take in account these ever changing trends when creating a strategic merchandising strategy to maximize profits in the tobacco category. The staff at TheCstoreEstore.com works alongside retailers to advise and provide the most appropriate tobacco fixtures to meet their merchandising needs. TheCstoreEstore.com is the leading online distributor of cigarette displays and tobacco fixtures and offers the largest selection of fixtures and displays, including overhead cigarette racks, under counter and custom tobacco fixtures. They offer discounts on every product for every order!
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*Visit http://www.awmashow.com/sites/default/files/Tobacco Trends & Insights.pdf to view the full trend report.